Administering some 700 million prescriptions each year, Medco Health Solutions knew its meds. The company was a top US pharmacy benefits management (PBM) firm and, through its Accredo Health unit, a leading specialty pharmacy as well. It assisted health plans in managing drug costs by designing formularies, negotiating discounts with drugmakers, and processing claims. Members' prescriptions were filled through a network of about 60,000 pharmacies, a mail-order program, or the company's call-center and Internet pharmacies. In 2012 Medco Health Solutions was acquired by rival PBM Express Scripts for some $29 billion.
The merger of the two leading PBMs created the nation's largest prescription benefits provider, controlling about one-third of the market. Both companies touted the potential benefits of merging: enhanced operational efficiencies could lower medication costs. However, the sheer size of the merger plans caught the attention of the Federal Trade Commission which carefully sniffed the details for possible violation of anti-trust regulations.
The acquisition plans were announced at an opportune time for Medco: its contract with top customer UnitedHealth (historically accounting for more than 15% of annual sales) was set to expire and not be renewed at the end of 2012. Following the acquisition, Medco was combined into a new Express Scripts holding company and its members were transferred.
Medco managed drug benefits for clients including unions, corporations, HMOs, insurance companies, and federal agencies; its clients in turn served some 65 million members. To gain the loyalty of its customers, the company put cost containment at the cornerstone of its business strategy. Medco strove to control costs through the use of technology to process prescription claims, automation to fill and distribute prescriptions, and volume purchasing of pharmaceuticals. It also encouraged the use of its mail order pharmacies and of generic equivalents in place of more expensive brand name drugs.
Medco's mail order business was a big part of this cost containment strategy. With seven order-processing pharmacies and two automated dispensing pharmacies scattered across the country, the company filled more than 100 million prescriptions a year. It used this scale to get better deals from suppliers and to force stricter compliance with health plan formularies..
Within its mail order pharmacy segment, Medco instituted Medco Therapeutic Resource Centers, which were specialized groups of pharmacists who focused on certain chronic or complex diseases. One of its largest Therapeutic Resource Centers provided diabetes supplies under the Liberty Medical brand. The company expanded the Liberty division when it bought the diabetes distribution assets of Owens & Minor subsidiary Access Diabetic Supply for $63 million in 2009.
Another key component of the company's strategy was the growth of Accredo Health, which dispensed sensitive biotechnology drugs, usually injectable or infusion drugs, to patients with serious diseases such as cancer and hemophilia. Accredo delivered medications and related supplies either to patient homes or clinical sites from three main distribution centers in Tennessee and Pennsylvania.
Within its traditional retail pharmacy operations, Medco worked to expand its service offerings to help pharmacists, patients, and payers select the most cost-efficient and accurate medical regime. To further this goal, in 2010 the company acquired personalized medicine company DNA Direct, a telemedicine provider of advisory services for gene-based and biological medicines. It also established the Medco Research Institute to pursue discovery efforts in pharmacogenomics, or the study of how a patient's genetic profile could assist in the physician's prescription selection process.
To build up its information services arm, the company paid some $730 million to acquire United BioSource Corporation (UBC) in 2010. UBC conducted safety and effectiveness research on pharmaceuticals and medical devices that has already been approved. United BioSource operated independently of Medco.
Medco also worked to take advantage of the Medicare Part D prescription drug benefit, by tailoring some services to clients offering Part D programs or other drug coverage to their Medicare-eligible members. It also contracted with the Centers for Medicare & Medicaid Services to offer a Medicare Part D drug plan of its own.
Medco went international -- it established pharmacy and mail order operations in countries such as Germany and the Netherlands. In 2009 Medco formed a partnership with United Drug to provide specialty pharmacy services in the UK, and the following year it formed a joint venture with Celesio to manage prescriptions for patients with chronic conditions across the European market. The firm's 2010 acquisition of UBC also enhanced global data analytic operations.